Question

Answer each of the following independent questions.

Alex Meir recently won a lottery and has the option of receiving one of the following three prizes: (1) $64,000 cash immediately, (2) $20,000 cash immediately and a six-period annuity of $8,000 beginning one year from today, or (3) a six-period annuity of $13,000 beginning one year from today. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

1-a.	Assuming an interest rate of 6%, determine the PV value for the above options.
	Annuity Payment PV Annuity Immediate Cash PV Option Option 1 + = $0 Option 2 + = $0 Option 3 + = $0

          

1-b.	Which option should Alex choose?
	Option (1) Option (2) Option (3)

  

2.

The Weimer Corporation wants to accumulate a sum of money to repay certain debts due on December 31, 2025. Weimer will make annual deposits of $100,000 into a special bank account at the end of each of 10 years beginning December 31, 2016. Assuming that the bank account pays 7% interest compounded annually, what will be the fund balance after the last payment is made on December 31, 2025? Table or calculator function: Payment: n = i = Future value:

     

Answer 1